A performance fee is a slice the manager takes when the fund beats a benchmark. In theory, it aligns their interests with yours: they do well when you do well. In practice, the details decide whether it's a fair deal or a quiet drag on your returns.
The three things to check.
The benchmark. Is it a tough, relevant comparison (a real index, like the JSE All Share) or something easier to beat (cash, inflation, a "composite" nobody uses)? A soft benchmark means the fee triggers in almost every market.
The hurdle. Does the manager only earn the performance fee once they've beaten the benchmark by a meaningful margin? A hurdle of zero means they're charging extra just for keeping up.
The high-water mark. If your fund falls and then recovers, does the manager charge a performance fee on the way back up, or only when they exceed the previous peak? Without a high-water mark, you pay twice for the same gain.
A rough test.
Add up the base fee and the performance fee earned in a typical year. If that "total fee in a good year" is comfortably under what a passive alternative charges, the performance fee is probably earning its keep. If not, it's likely just marketing.
Performance fees aren't inherently unfair. Badly-structured ones are. The difference is in the fine print, which is usually in a document labelled "schedule of fees" and worth actually reading.